Why Angel Investors Don’t Make Money … And Advice For People Who Are Going To Become Angels Anyway | TechCrunchIf the average VC fund barely makes money, and seed investments represent even less compelling opportunities than the ones pursued by venture capital firms, then the typical return for angels must be atrocious. Even Ron Conway’s second angel fund, which had the good fortune to invest in Google (a 400x cost winner), only broke even (that means close to a 0 percent IRR)!
What Happens Next Will Amaze YouHere is Bill Maris, of Google Ventures. This year alone Bill gets to invest $425 million of Google's money, and his stated goal is to live forever. He's explained that the worst part of being a billionaire is going to the grave with everyone else. “I just hope to live long enough not to die.” I went to school with Bill. He's a nice guy. But making him immortal is not going to make life better for anyone in my city. It will just exacerbate the rent crisis. Here's Elon Musk. In a television interview this week, Musk said: "I'm trying to do useful things." Then he outlined his plan to detonate nuclear weapons on Mars. These people are the face of our industry. Peter Thiel has publicly complained that giving women the vote back in 1920 has made democratic capitalism impossible. He asserts that "the fate of our world may depend on the effort of a single person who builds or propagates the machinery of freedom that makes the world safe for capitalism." I'm so tired of this shit. Aren't you tired of this shit?
Gentry investingInvesting has become the genteel occupation of our gentry, like having a country estate used to be in England. It's a class marker and a socially acceptable way for rich techies to pass their time. Gentlemen investors decide what ideas are worth pursuing, and the people pitching to them tailor their proposals accordingly. The companies that come out of this are no longer pursuing profit, or even revenue. Instead, the measure of their success is valuation—how much money they've convinced people to tell them they're worth.
Startup study shows women founders do better than men - Business InsiderAfter examing a decade's worth of data from 300 portfolio companies, First Round Capital learned that startup teams with at least one female founder performed 63 percent better than all male teams. The data also showed that women are present in the top ranks of their ten most valuable companies.
7 Rejections for AirBnBWe were attempting to raise $150,000 at a $1.5M valuation. That means for $150,000 you could have bought 10% of Airbnb. Below you will see 5 rejections. The other 2 did not reply.
VCs hope Headspace heeds their BSMamoon Hamid, at Social Capital, said that, despite his admiration for Headspace, he has decided not to invest. His reason was Puddicombe. He told me, “It’s extremely compelling when a Buddhist monk walks in the door. It’s true to brand. It’s authentic.” But, he said, “at the end of the day, we want to create the biggest company around this concept without being shackled by your Buddhist-monk tendencies.” Headspace has an impressive number of users for a product that has spread almost entirely by word of mouth. But, Hamid said, “in order to get to two hundred million users, you have to break a lot of glass along the way. Your company will change over time, and are you O.K. with that?” In the end, he said, “you have to let go”—the dharma of Silicon Valley.
Personality wins? The data says all that matters is product-market fit.The most important thing about a startup, even more important than the idea, is the team that supports it. An idea evolves over time, the product and business pivot as the environment changes, and the technology improves and gets disrupted. But throughout, the people make all the difference between success and failure. Both Vinit and Paul share a dedication to building an outstanding team, which is a large part of why I chose to become invested in the company’s vision.
The next tech bubble is about to burstFew of these VCs will actually use the term “tech bubble.” They have investments whose value they would probably prefer to not destroy. They’re hedging their bets by calling it things like a “risk bubble” (Gurley), an “escalating risk of a catastrophic down round” (Andreessen), or “Burning cash. Losing money. Emphasis on the losing” (Wilson). These semantic distinctions may seem important now, but they’ll seem quaint when people start losing their jobs.
Incubators hurt start-ups?Incubators promise a lot of resources to startups, like office space, printers, paper, events, networking, assistance connecting startup founders to funders, help with presentations and many other services, says Fetsch. “But the average incubator actually has less than two full-time staff and 25 businesses. That’s a lot of service to provide for two people. So are they really providing all the services they say? It seems unlikely,” she says. Although incubated businesses have slightly higher employment, growth and sales, they also have slightly lower survival rates after they graduate.
VCs betting on lawsuitsFor better or worse, the lawsuit-finance market continues to grow. Hedge funds and others speculating on litigation are making more and larger bets. Some corporate lobbyists warn that the new financial engineering encourages wasteful courtroom warfare, but investor demand for fat returns—and big law firms' appetite for business—guarantee the spread of litigation finance.
In Venture Capital, Birds of a Feather Lose Money Together (Success Defined as IPO)They found that the probability of success decreased by 17 percent if two co-investors had previously worked at the same company—even if they hadn't worked there at the same time. In cases where investors had attended the same undergraduate school, the success rate dropped by 19 percent. And, overall, investors who were members of the same ethnic minority were 20 percent less successful than investors with different ethnic backgrounds.
I do think we have a lot of diversity, for four white guys. Believe it or not, we’re pretty different people, with a lot of common ground between us. Diversity with a shared core we think is the most powerful thing that exists, and we would love to add to that on multiple dimensions and would love nothing more than that. I think the group of people we have, we are always looking for a new Benchmark partner all the time, every day. The group of people we have to look at that are the people who have demonstrated leadership in the industry, and it is what it is.
In a survey asking about factors that contributed to their success, entrepreneurs ranked past successes and past failures above everything but prior work experience. Yet new research from from the Centre for European Economic Research casts doubt on that belief. In a recent paper, researchers used survey data to examine the success or failure of 8,400 entrepreneurial ventures in Germany, and whether the founder’s previous experience predicted the outcome. They concluded previously successful entrepreneurs were no more likely to succeed in their next venture, and that previously failed founders were more likely to fail than novice entrepreneurs. These results held even after accounting for education and industry experience.
The hard part is getting the first offer. Once you have this, you have the leverage -- if other investors don’t act fast, you have an offer you can take, and they risk missing a potentially great opportunity (and maybe looking stupid to their partners, etc etc.) Until then, they can procrastinate and wait as long as they want. It’s remarkable how long it can take the first offer to come in, and how quickly the next ten can materialize.
Because hedge funds are often flexible in their mandates, they have the capacity and permission from their LPs to fund private deals. Also, hedge funds aren’t beholden to returning money in the same way VCs are. They can be flexible on pricing and valuations, because a 10 or 20 percent return is stellar. Last year, hedge funds returned an average of 7.4 percent. VCs aim toward a much higher percent return — and need to price and value startups to optimize for that. And because of this flexible structure, hedge funds can give founders cash more quickly than a VC. Hedge funds have their cash on hand and can liquidate faster. VCs operate on a commitment basis and don’t collect their entire funds at once. One investor referred to hedge funds as ideal for “easy, quick cash.”
The most obvious lesson to come out of Viddy may be to raise capital prudently. More valuable, however, is to recognize Viddy as a clear example of the risks of relying on another company’s platform as your primary user acquisition channel. Viddy’s meteoric rise to its one-time-high of more than 30 million monthly active users was fueled almost entirely by Facebook. And when the social network tweaked its News Feed algorithms and pulled the plug on this free traffic bonanza, it took down Viddy along with dozens of other companies. Sure it was out of Viddy’s control, but it was also part of a larger pattern of behavior within Facebook that should have had all platform partners on red alert. It’s fine to gobble up all the free traffic and virality that you can grab, but it’s another thing to take on a $370 million valuation and turn down marquee acquirers based on that alone.
the most significant excess returns earned from venture capital occurred in funds raised prior to 1996, and those funds averaged $96 million in committed capital. Many of those successful funds led managers to raise successively larger funds; which significantly eroded returns and maximized general partner profits through fee-based income at the expense of limited partner success. "The result is that institutional investors end up paying general partners – who typically commit only 1 percent of partner dollars to a new fund while LPs commit the remaining 99 percent – quite handsomely to build funds, not build companies," said Mulcahy.